Thailand: solid domestic consumption in September

05 November 2004

Despite the fact that September is normally a weak month for cement sales, domestic cement demand rose 18.7 per cent YoY and 5 per cent MoM to 2.4Mt in September 2004, according to the Bank of Thailand.

Domestic cement demand has remained solid in the first nine months of this year, rising 13 per cent YoY to 20.5Mt. Strong growth is attributed to infrastructure projects as well as active construction of residential property. An indicator supporting cement demand growth is the total construction area permitted, which increased by 36 per cent YoY to 14.6Mm2 in the first eight months of this year.

The cement demand growth estimate this year is raised to 11 from 9 per cent, assuming that cement demand growth for the remaining three months will be 5 per cent. Cement demand growth in 2005 is maintained at 8 per cent, driven by the government’s plan to spend Bt1.5trn on infrastructure projects during the next five years. Assuming government spending of Bt100bn per year for these infrastructure projects during the next five years, cement demand would increase by about 1.3Mt, which is roughly equivalent to an additional 5 per cent cement demand growth per annum.

Cement prices in the Bangkok metropolitan area continued to soften further by Bt30/t this month. Currently, wholesale cement prices are Bt1,795/t for mixed cement and Bt2,134/t for Portland cement.

Currently, cement companies are achieving an average price of Bt1,450/t for mixed cement versus the ex-factory price ceiling of Bt1,958/t, and average price of Bt1,770/t for Portland cement versus the ex-factory price of Bt2,294/t. This is the lowest level during the past two years.

Cement companies have now emphasized more on fighting brands, ie mortar cement, which has lower clinker content than mixed cement. The products are sold in the northern and northeastern parts of Thailand, which account for 30-40 per centof total sales.

The recent weakness in cement price is not considered as indicating a price war, since cement prices have been sustained at this level for the past three months. Rebates provided to dealers should be reduced in the near term.